Say Goodbye to the Cash Register

Reporter Nitasha Tiku covers technology, finance, green business, and social entrepreneurship for Inc. magazine and contributes to the staff?s daily links blog. Her work has appeared in New York magazine, The Villager, Chelsea Now, and on nymag.com. She lives in Brooklyn, New York.

Whether you are at a trade show, a street fair, a sporting event, or just on the road, it has gotten a lot easier to make a credit card sale. Thanks to a host of new applications, businesses can process credit cards without using dedicated wireless devices or clunky terminals, which can cost anywhere from $200 to $2,000. All you need is your cell phone.

Technicians at Jackson Comfort Systems, a $3 million company in Northfield, Ohio, that offers heating and air-conditioning repair and installation, recently started using their phones to process orders in clients' homes and offices. After an employee finishes a job, he keys the customer's credit card information into an application on his cell phone. The data are automatically encrypted, and payment is processed immediately. No information is stored on the phone. After the transaction is approved, the technician can use the application to send the customer a receipt via e-mail or text message.

Processing payments on cell phones, says owner Pat Jackson, works much better than the old system, in which technicians sometimes scribbled card numbers on invoices to take back to the office. Customers weren't thrilled about handing over their credit card information, and sometimes technicians would get back to the office only to discover that the card number was wrong or had been declined.

Jackson's company uses Intuit's GoPayment application, which she chose because it worked on the Nextel phones her technicians already carried on the job. For the few employees who frequently process transactions, she also purchased, for $145 each, swipe sleeves that wirelessly connect to the phones using Bluetooth technology. The mobile application has become an integral part of the company's day-to-day operations. "I can't think of a drawback," Jackson says. "We're exactly the type of business this is for."

Mobile card processors may be well suited for companies that want to process payments off-site, but retailers have also begun using them in stores. Self Edge, a high-end clothing retailer based in San Francisco, never installed a register in the company's third boutique, in New York City. Instead, in the middle of the store, past the racks of vintage-inspired jeans and next to a rotary phone and a vintage riveting tool, there's an iPhone on the large wooden desk that serves as the store's checkout counter. The phone, which is the boutique's only means of processing credit cards, has a small plastic cube plugged into the headphone jack.

The device, called Square, is a card reader and app that makes it easy to swipe customers' credit cards. Instead of printing a receipt, the clerk asks for an e-mail address, and Square sends the customer an electronic receipt via e-mail. The app can also send a receipt by text message. The cashier can even include a photo of the items the customer bought, snapped with the iPhone.

The entrepreneur behind Square, Twitter co-founder Jack Dorsey, invited Kiya Babzani, co-founder of Self Edge, to test the device when Dorsey launched his new venture last year. At first, Babzani feared it would look unprofessional: "What if it looked like we had jury-rigged the system when we're selling someone a $400 pair of jeans and a $1,500 jacket?" But after seeing the service in action, Babzani decided to try it out as the exclusive payment processing system when he opened his New York City boutique. So far, customers have reacted with fascination rather than skepticism, says Andrew Chen, co-owner of the Self Edge store in New York.

Because none of the credit card information is stored in the phone -- the data are encrypted and sent from the Square application to the credit card companies, without being stored on Square's servers -- Chen says he isn't concerned about someone stealing the phone. "Having a cash register with cash in it stolen from us would be a lot more costly than losing an iPhone," he says. Still, after one customer, eager to examine how it worked, dropped the iPhone and broke the swiper, Chen is careful to hold the phone himself during a transaction.

Like traditional credit card terminals -- and the dedicated wireless processors you might have seen used by delivery guys or tableside in restaurants -- nearly all mobile applications that process credit cards require a merchant account, a type of bank account that enables businesses to accept payments by debit or credit. The application process involves background and credit checks, and can take a few days to a few weeks. Most mobile payment software works with existing merchant accounts. Jackson, who didn't have a merchant account, had to open one through Intuit before she downloaded GoPayment.

Unlike most applications, Square automatically gives users access to its processing services, which means users don't need a merchant account. After you get a free swiper and download the free application, you just type in your banking information, and you can be up and running in less than a minute, Dorsey claims. Babzani already had a merchant account for Self Edge's other boutiques, but he liked that Square offers a single swipe fee for all transactions. Whether you use a mobile app or a traditional terminal, most credit card processors charge a complicated array of interchange, or swipe, fees, which can range from about 1.2 percent to 3 percent, depending on many factors, such as whether the card is debit or credit as well as whether the card was swiped or the information was keyed in.

Although using Square requires some clerical work for Chen -- to manage inventory, he manually enters information about purchases made with Square into the point-of-sale software on the store's iMac -- he says customers seem to enjoy the novelty of swiping their credit cards on a cell phone. "When people tweet about what they bought here," says Chen, "half the time they'll say, 'I paid with this crazy payment system.' "